Monday, 4 April 2016

EU Consumers’ Actions for Damages: Quo Vadis?

By the end of this year, the EU Damages Directive (“the Directive”) - designed to
encourage consumers and small businesses to claim for damages against
competition law offenders - must be implemented by the Member States.

Thirteen years ago, in 2003 Wouter P.J. Wils, member of the Legal Service of the
European Commission, when answering the question whether private enforcement of
EU Antitrust Law should be encouraged, concluded that there did not appear to
be a clear social need for such action. The overall perception seems to
have changed significantly since. However, we are not yet fully adjusted
to this new challenge.

Background

Adopted in December 2014, the Directive requires all EU
Member States – and all EEA states – to “ensure that any natural or legal
person who has suffered harm caused by an infringement of competition law is
able to claim and to obtain full compensation for that harm”. Even if the
Commission has already fined offending parties, every person who has suffered
losses as a result of competition violations i.e. being priced out of the
market, is entitled to bring damages claims before national courts.

The EU Member States are must implement the new Directive by
December 2016. National legislators must incorporate several eye-catching
changes, such as files disclosure, class actions, liability in solidum (not for leniency recipients), and an unfettered presumption that a
cartel causes loss or passing-on effects.

The new regulation arrives almost parallel to US Courts’
abatement of their extraterritorial jurisdiction in antitrust cases, as
evidenced by Motorola Mobility
v. AU Optronics. The signal has been
sent: US anti-trust leadership is clearly over.

Class actions

Parallel to the Directive, the Commission adopted a
Recommendation inviting the Member States to facilitate,
by the end of July 2015, effective collective redress for victims of antitrust
wrongdoers that facilitate compensatory relief. If required, new
harmonised measures will be “mis en place” by summer 2017.

While opt-out damages actions are already a
commonplace in the UK, thanks to the Consumer Rights Act 2015, the threat of a shift towards the US
style, may apparently have had a bearing on the Commission’s recommendation
of opt-in actions as preferred procedure. (Note that in an opt-in system,
claimants must communicate their acceptance in order to be bound by the result;
in an opt-out scenario the action is brought on behalf of all
claimants except those who have actively chosen not to participate).

The choice between an opt-in or opt-out system is
particularly relevant. Whether a potential claim merits or not the time and
high costs, including lawyers and economic experts, is the first consideration
to be aware of. And here, two points are raised: (i) the Directive
is addressed to consumers and small businesses to obtain compensation for
losses suffered, and (ii) an Opt-out system has proved crucial to class
actions where the individual claim is small. Why, then, not choose
opt-out proceedings? Could a claims aggregator cover this gap?

The phantom menace of
US class actions

The greatest difference between the EU and US class action
system is the aim pursued by private enforcement: corrective justice through
law or preventing infringements from taking place. Bearing this in mind,
the US has a longstanding practice on deterring companies from infringing
anti-trust rules, therefore, going beyond compensation for loss.

On the contrary, the Commission holds private damages enforcement
as a compensation for loss, focussing on corrective justice, but not
exclusively. It is also underlined that private enforcement should
coexist with public enforcement, but preserving the attractiveness of tools
used by competition authorities, in particular, leniency and settlement
programmes to pursue infringements. Neither the Directive, nor the earlier
Green Paper prioritises one of these divergent goals, adding unnecessary confusion to the
already complex structure of EU legislation.

Once again, the phantom menace of US style class actions
excesses seems have lead the EU legislator to ban contingency fees, and to
limit damages to the harm caused. The Commission choice for harm caused (including lost profit and pre-judgment interest but not
treble damages: Art. 3 of the Directive), also refrains from following the USA model.

Is the Commission scared of US class actions’ excesses?
Is there another reason? Could the desire to maintain a strong
public enforcement be behind all this? Not everything is as bad in
the US system and as good in the EU system as the picture painted by some
voices inside the Commission. Anti-trust/competition Law is in constant
development, and the US damages approach has been refined over the years.
By way of example, higher accuracy in the evaluation of standing and pleading
requirements, mandatory causal link rules, and the latest amendments, which
grant parties to immediately review class action certification orders, in order
to avoid unfair settlement practices regardless of the merits of the claim.

Therefore, the Commission’s safeguards, such as protection of
leniency program and files disclosure, are aimed at protecting a public
monopoly on competition enforcement over private, rather than trying to avoid
US class actions’ excesses. It is right to do so, but, - and this is the
major criticism of the Directive - it fails on its compensation objective, and, hence, consumer protection.

Are damages claims
assets?

The right to buy claims from victims of competition law
infringements is observed under Article 2.4 of the Directive. Thus, new
pooling players, driven by private profit motives (already well known in US),
are allowed to settle in our judicial system. These third-parties (claims
aggregators) acquire the rights of multiple consumers harmed by one
infringement to bring a lawsuit.

How are these new players funded? How different is this
alternative way of financing from US contingency fees? The underlying
reason could be (awfully for some European civil servants) too similar:
the need to identify suitable sources of financing litigation.

The Commission is unswerving in its determination to
encourage consumers to bring damages claims before national courts for
competition violations. Without a third-party, there is absolutely
nothing that consumers and small businesses can do due to the high amount of
legal expenses and risks. Claims aggregators will buy damages actions for
a fixed price plus a variable amount in case of success. However, is this
not the same as contingency fees?

Practical significance

Notably, the European market is becoming an attractive field
for third-parties specialised in the collection of follow-on actions in
antitrust litigation. Every single competition infringement, if suitable,
could potentially bring a class action. However, litigation is always
risky, and despite some early enthusiasm, a mandatory caution should be applied
in any class action case selection.

Third-parties will need significant amounts of money. Recent
rulings, such CDC’s multimillionaire claim on the German cement cartel case, where the Higher Regional Court of
Dusseldorf dismissed the class action as the proposed financial vehicle had
insufficient funding, have shown the need of a strong economic foundation.

Thus, international outsourcing entities offering solutions
to victims of competition infringements have emerged in the European market: the Joint Venture between Buford’s and Hausfeld or, Buford’s biggest competitor, Bentham[16], who is financially supporting class
actions against Volkswagen AG and Tesco. These examples are just the
beginning of a predictable intense activity – see the UK
pensioners’ class action seeking compensation from Pride Mobility
Products for breaches of competition law – and will be potentially
followed by actions for damages on Libor submissions (Royal Bank of Scotland
among other banks), FX manipulations, as well as against Melco and Hitachi car
parts’ cartel.

Conclusion

Although it is recognised that the EU’s anti-trust goal is to
prevent, curb or end violations of competition rules, the main goal has always
been to ensure consumer protection, without which, the whole orchestra is
clearly deficient. The new law will, in all likelihood, increase private competition
class claims in Europe. Rulings on these initial cases will certainly
pave the way and could bring new cases to light.

Let us hope, however, that concessions granted by the
Commission to public enforcement – leniency or files disclosure among others –
will not prevent the Directive reaching its main objective: to motivate
consumers and small businesses to sue and to be compensated. Irrefutably,
it is a warning against antitrust law offenders who will see higher negative
financial consequences of potential infringements, even if deterrence is not
the main objective.